Annex 1
Ofwat INFORMATION NOTE NO 35
SERVICEABILITY OF THE WATER AND SEWERAGE
NETWORKS IN ENGLAND AND WALES
SERVICEABILITY FOR
CUSTOMERS
In 1994, Ofwat assessed the company plans for
the future management and capital maintenance of the underground
systems using the concept of serviceability for customers. This
approach looked at the past performance of the potable water and
sewerage networks in maintaining the flow of services to/from
customers.
Performance of the overall networks was examined
across a range of measures to assess whether services to customers
were stable, improving or deteriorating. This performance was
contrasted with the records of past activity/expenditure on the
infrastructure and an assessment of how efficient the company
was relative to its peers in capital works. Future price limits
provided for significant increases in existing levels of capital
maintenance activity where there was evidence of deteriorating
serviceability for customers and the company was efficient in
carrying out capital works.
The key elements of performance assessment for
the potable water infrastructure are itemised below. The aggregate
trend assessment of serviceability for customers, is shown in
Figure 1.
Compliance Quality
There has been an improving trend in performance
in this area over the last five years. Within the distribution
systems, unlined iron mains create non-compliance problems. Focused
work on these mains has reduced the percentage of distribution
zones where there are these types of problems (down to 24 per
cent in 1994 with only 1.9 per cent of samples failing). The scale
of the leeching of poly aromatic hydrocarbons (PAH) from older
lined mains has been identified, with 12 per cent of zones non-compliant
in 1994.
Extent of low pressure problems (DG2)
Assessments of the number of properties at risk
from receiving unacceptably low pressure have been made for a
considerable period. The position on this aspect of serviceability
shows an improving trend particularly in recent years where the
data is more robust.
Number of bursts disrupting services to customers
The long term trend shows a reasonably stable
position on the infrastructure with some improvements in recent
times (except for 1995-96).
Scale of interruptions of supplies to customers
(DG3)
Unplanned interruptions to supplies greater
than 12 hours show an improving trend in recent years (except
for 1995-96).
The view taken in 1994, based on data up to
1992-93, was that there was little reason to increase levels of
infrastructure maintenance in the water service. Improvements
in efficiency and more focused work resulting from better information
systems should enable the companies to maintain the improving
trend. Very unusual climatic condition in 1995-96 (a severe and
prolonged drought and a deep freeze followed by a rapid thaw)
disrupted the trend.
The key elements of performance assessment for
the sewerage infrastructure are itemised below. The aggregate
trend assessment of serviceability for customers, is shown in
Figure 2.
Properties flooded from sewers due to hydraulic
inadequacy (DG5)
The trend in recent times has been variable
and gives a mixed picture of serviceability for customers and
some evidence of a slightly worsening position to 1993-94 with
recent improvements.
Number of sewer collapses
This trend is reasonably stable.
The view taken in 1994, based on data up to
1992-93, was that there was some cause for concern in terms of
deteriorating serviceability for customers from the sewer networks.
A slight but significant increase in activity was assumed in future
price limits. Improvements in efficiency and more focused work
arising from better information are expected to enable the companies
to start to improve performance of the sewer networks.
THE UNDERGROUND
ASSET STOCK
As part of the 1994 review of price limits,
companies carried out a systematic assessment of their assets
(both underground and above ground). Methods and reporting requirements
were standardised. The whole process was exposed to technical
audit by the nominated Reporters. The studies were summarised
in the companies strategic business plan submissions to Ofwat
in March 1994.
The information, together with assessments of
individual company networks serviceability for customers, was
used by Ofwat to set price limits for all service providers in
July 1994.
The aggregate asset stock, condition and serviceability
information from the strategic business plans for potable water
mains is summarised below.
| POTABLE WATER MAINS—1992-93—ASSET STOCK <=300
| <=600 | <=900
| >900 | Total
| Gross |
| bore | bore
| bore | bore
| stock | MEA
|
| (km) | (km)
| (km) | (km)
| (km) | (£bn)
|
| 238,000 | 46,000
| 19,000 | 8,000
| 311,000 | £31.6b
|
| ASSET CONDITION | Grade 1
| Grade 2 | Grade 3
| Grade 4 | Grade 5
|
| Prop'n | 40%
| 35% | 16%
| 5% | 4%
|
INDIVIDUAL ASSET SERVICEABILITY
82% fully serviceable and acceptable
| 18% unsatisfactory and cause for concern
|
Notes on Condition Grades:
Condition grade 1: No failures, fully complies with modern
standards.
Condition grade 2: No significant failures (minimal impact
on service performance), not quite consistent with modern standards.
Condition grade 3: Deterioration beginning to be reflected
in service levels or increased operating costs.
Condition grade 4: Considerable corrosion affecting service
performance, nearing end of useful life, frequent bursts.
Condition grade 5: Substantially derelict and source of service
problems, no residual life.
The gross replacement cost of all the potable mains with
modern equivalent asssets (MEA) was estimated to be over £31
billion. Around 9 per cent of the potable water pipes were found
to be relatively poor condition (condition grades 4 and 5). Around
18 per cent of potable water pipes were unsatisfactory from an
individual asset serviceability standpoint. Serviceability incorporates
quality problems in unlined iron mains and leeching of poly aromatic
hydrocarbons (PAH) from older lined mains.
The aggregate asset stock, condition and serviceability information
from the strategic business plans for sewerage asssets are summarised
below.
| CRITICAL SEWERS—1992-93 <=150 bore (km)
| <=300 bore (km) |
<=600 bore (km) | <=900 bore (km)
| >900 bore (km) |
Total Stock (km) |
| 15,000 | 25,000
| 14,800 | 7,500
| 9,400 | 71,700
|
| Grade 1 | Grade 2
| Grade 3 | Grade 4
| Grade 5 | Gross MEA (£bn)
|
| 60% | 19% |
12% | 7%
| 3% | £34.4b
|
INDIVIDUAL ASSET SERVICEABILITY
90% fully serviceable and acceptable
| 10% unsatisfactory and cause for concern
|
| NON-CRITICAL SEWERS—1992-93 <=150 bore (km)
| <=300 bore (km) |
<=600 bore (km) | Total Stock (km)
|
| 113,300 | 79,900
| 30,000 | 223,200
|
| Grade 1 | Grade 2
| Grade 3 | Grade 4
| Grade 5 | Gross MEA (£bn)
|
| 62% | 18% |
12% | 6%
| 2% | £57.2b
|
INDIVIDUAL ASSET SERVICEABILITY
94% fully serviceable and acceptable
| 6% unsatisfactory and cause for concern
|
Notes on Condition Grades for Sewers:
Condition grade 1: No structural defects.
Condition grade 2: Minor cracking in brisk sewers but no deformation
or loss of bricks, line and level as built; for other sewers some
circumferential cracking or moderate joint defects.
Condition grade 3: Some deformation in brick sewers, displaced
bricks, occasional connection defects; for other sewers some deformation
(up to 5 per cent), cracking or fractures or joint defects or
minor loss of level or badly made connections.
Condition grade 4: Deformation in brisk sewers up to 10 per
cent, some brick loss or moderate loss of level or frequent badly
made connections or moderate loss of level; for other sewers deformation
of up to 10 per cent, cracked or fractured or serious loss of
level.
Condition grade 5: Collapsed or severely deformed sewers or
missing inverts or extensive areas of missing fabric/bricks.
The gross replacement cost of the sewers with modern equivalent
assets (MEA) was estimated to be over £91 billion. Around
8 to 10 per cent of the sewers were found to be poor condition
(condition grades 4 and 5).
RECENT ACTIVITY
LEVELS
The aggregate activity on the potable water network over
the last six years is summarised below.
| ACTIVITY ON POTABLE WATER MAINS Activity
| 1990-91 | 1991-92
| 1992-93 | 1993-94
| 1994-95 | 1995-96
|
| Relining | 1,926
| 2,642 | 2,077
| 2,011 | 2,037
| 1,380 |
| Renewal | 1,909
| 2,442 | 2,359
| 2,187 | 2,330
| 2,739 |
| New Mains | 2,564
| 2,808 | 1,953
| 1,787 | 1,809
| 1,635 |
| Total Activity | 6,489
| 7,983 | 6,481
| 6,078 | 6,270
| 5,849 |
The activity includes work to improve quality compliance
in addition to that necessary just to maintain serviceability
for customers.
The aggregate activity on the critical sewer network over
the last five years is summarised below.
ACTIVITY ON CRITICAL SEWERS
| Activity | 1990-91
| 1991-92 | 1992-93
| 1993-94 | 1994-95
| 1995-96 |
| Renovation | 152
| 131 | 89
| 59 | 80
| 104 |
| Replacement | 3
| 165 | 146
| 111 | 68
| 76 |
| New sewers | 384
| 507 | 455
| 334 | 350
| 228 |
| Total Activity | 539
| 803 | 690
| 504 | 498
| 408 |
ACCOUNTING TREATMENT
FOR INFRASTRUCTURE
ASSETS
In the late 1980s the water industry in England and Wales
adopted renewals accounting for the very long-lived infrastructure
assets. This was a move away from conventional depreciation based
on assumed asset lives. The actual age of network assets has little
or no impact on whether it is performing satisfactorily or is
in need of routine maintenance, renovation or replacement. Renewals
accounting is based on an operational assessment of activity needed
to maintain the performance of the underground infrastructure
over a reasonably long period (15 to 20 years)—consistent
with the approach to serviceability for customers.
An operational assessment is used by companies to estimate
a reasonably long term investment need. For accounting purposes
an average infrastructure renewals charge (IRC) is assumed in
the annual profit and loss account.
In 1994 Ofwat assumed IRC based on five years past investment
levels and the forward projections for the 10 years of set price
limits coming out of the serviceability for customers assessment.
Annual variations between actual expenditure and the relevant
IRC are carried forward in the company balance sheets either as
an accrual (a liability to carry out higher levels of maintenance
sometime in the future which has already been provided for) or
a prepayment (ahead of the original plan and a likelihood of lower
levels of maintenance sometime in the future).
FUTURE PERIODIC
REVIEWS
As a minimum, all price limit determinations provide for
the maintenance of serviceability for customers. If companies
do not consider the price limits are sufficient then they can
appeal to the MMC. At the 1999 periodic review the performance
of the networks will be reviewed. Serviceability trends covering
the period 1990-91 to 1997-98 (and part of 1998-99) will be available
to the Director. A second systematic review of the asset stock
will also be available as at the 1997-98 base year. A decline
in serviceability would be considered a serious shortfall in company
performance and require rapid and effective remedies at no cost
to the customers. The trend data, an assessment of the stock data
and the results of comparative capital maintenance studies will
provide a basis for future projections of investment needed to
maintain serviceability over the next price limit period.
TERMINATION OF
LICENCES
One of the key tests of a company's stewardship is whether
serviceability for customers has been maintained over the period
of its licence. The 25 year licences granted in 1989 run to 2014.
The respective Secretary of State, on advice from the Director,
has to give 10 year notice of termination. A decision on whether
to issue notice of termination or extend the licence can be taken
in 2004.
By 2004 there will be reasonably consistent serviceability
trend information covering the period 1990-91 and 2003-04 (14
years data). Also there will be the results of three systematic
assessments of the overall asset stock, condition and serviceability
relating to the positions in 1992-93, 1997-98 and 2002-03 (periodic
review base years). This data would provide a basis for the Director's
recommendations to the Secretary of State.
By 2014 the serviceability trend information will then run
to 24 years and there will be five systematic assessments of the
asset stock (the additional base years of 2007-08 and 2012-13).
A deteriorating trend of serviceability would need to be rectified
very quickly as part of any new licence at no additional cost
to customers. The need for such work following the transfer of
a licence would have a very serious impact on the monies paid
by the new owners for the infrastructure assets of the original
licensee. This represents a final and very direct incentive for
the owners of the companies to ensure that their companies maintain
the serviceability of the asset stock and so protect the value
of their investment.
January 1997
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